On 30 July 2019, the Czech government approved a bill implementing DAC 6 on the mandatory disclosure of cross-border tax arrangements and is expected to submit the proposed law to the Czech parliament. The bill underwent several changes in comparison with the initial draft published in March 2019.
The Czech Republic must implement DAC 6 (EU Council Directive 2011/16 on cross-border tax arrangements) in domestic legislation by 31 December 2019 and start to apply it as of 1 July 2020. The government has drafted a bill on mandatory disclosure of certain cross-border arrangements and the automatic exchange of related information, which is broadly aligned with DAC 6. The new rules will apply to all taxes except VAT, customs and excise duty and mandatory social security contributions.
In general, arrangements must be reported if they meet the definition of a cross-border arrangement and fulfil at least one of the features indicating aggressive tax planning (known as hallmarks). The provisions defining the hallmarks have been re-worded and included in an annex to the proposed act instead of a separate decree (as originally proposed). The hallmarks include e.g. the taxpayer’s obligation to keep the information about how the arrangement can achieve tax savings confidential, an intermediary’s remuneration that depends on tax savings and the artificial use of a loss-making corporation. In addition, the arrangements are tested to establish whether their main benefit or one of the main benefits is obtaining a tax advantage (the main benefits test). In certain cases, however, the reporting duty arises regardless of the outcome of the main benefits test. This involves, for example, arrangements relating to transfer pricing.
Under Czech law, the disclosure obligation generally falls on intermediaries with a nexus to the Czech Republic and may be shifted to the taxpayer in certain circumstances. The definition of an intermediary covers any person who designs, markets, organises, makes available for implementation or manages the implementation of any reportable cross-border arrangement. It also covers any person who knows or could reasonably be expected to know that they have undertaken to provide assistance in a reportable arrangement. The duty applies to all persons involved unless they can show that the arrangement has already been disclosed, which should avoid the need for multiple reporting. The taxpayer must report the arrangement it implements without an intermediary’s assistance or a case in which disclosure would breach the intermediaries' professional privilege as attorneys, tax advisors, notaries and auditors under Czech law or professional privilege in another EU Member State. Such intermediaries have an information obligation to the taxpayer and other intermediaries. It should be noted that if an arrangement is designed in-house within a group, other group entities such as the parent company may be considered intermediaries.
The disclosed information will include the identification of the taxpayer and intermediaries involved, details of the hallmark, a description of the arrangement and its legal basis, the date on which the first step of the implementation has been or is expected to be taken, the value of the arrangement, the identification of relevant EU Member States and other persons concerned. The disclosure deadline is 30 days after the date on which the arrangement is made available for implementation or is ready for implementation or the first step of the implementation has been taken, whichever occurs earlier. The fact that tax authorities do not take any immediate action after they have received the information does not mean the automatic approval of the arrangement reported.
The reporting should start as of 1 July 2020, and the reporting obligation will apply retroactively to arrangements in which the first step to implementing them was taken after 25 June 2018. For a breach of the disclosure duty, penalties of up to CZK 500,000 (approx. EUR 20,000) may be imposed. The bill is still subject to the legislative process and therefore its wording may change.